VW seals $4.7B Porsche deal

Porsche and Volkswagen are working towards a full merger after Porsche's failed attempt to takeover rival.
Volkswagen is to pay ?3.3 billion ($4.7B) for a 42 percent stake in Porsche’s main production division, the two German carmakers said yesterday as they thrashed out more details of a move towards a full integration.

In a move that will amount to a rescue of debt-laden Porsche, VW will also buy the automobile trading business of Porsche Holding Salzburg, Europe’s biggest vehicle dealer that is also owned by the sports car maker’s family owners. Porsche first plans to sell most of its options over about 20 percent of VW’s shares to the Qatar Investment Authority. Yesterday’s agreement follows the dramatic ousting last month of Wendelin Wiedeking, Porsche’s former chief executive, whose spell as one of the world’s best remunerated managers was brought to an end by Porsche’s owners as the sports car maker struggled to complete his strategy of taking over its much larger rival. The deals announced yesterday are set to culminate in a complex merger of VW and Porsche SE — the holding company of the sports car maker, and owner of 50.8 percent of VW — during 2011. Porsche’s deal with VW is needed partly to free it of the €10B ($14B) of net debt that it has accumulated in trying to take control of Europe’s biggest carmaker.

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“The precise shareholder interests following a merger are not yet final. However, the Porsche and Piëch family shareholders will remain the largest shareholders at Volkswagen,” VW said after meetings of the two companies’ boards in VW’s home town of Wolfsburg. VW said the companies settled on a value of €12.4B ($17.7B) for Porsche AG, the car-producing subsidiary of the Porsche holding company. Taking Porsche’s debt into account, VW said it would pay up to €3.3B ($4.7B) for the stake, while the companies put an enterprise value of €3.55B ($5B) on the operating business of Porsche Holding Salzburg. VW plans a capital increase in the first half of next year to fund the deal and preserve its credit rating. The deal will see Ferdinand Piëch, chairman of VW and a shareholder in both companies, fulfil a goal of reuniting the companies. His grandfather, Ferdinand Porsche, designed the VW Beetle. Martin Winterkorn, chief executive of VW, will also head Porsche SE. Mr Wiedeking departed last month with a €50 million ($71M) payoff while Porsche warned it could make a pre-tax loss of up to €5B ($7B) this year because of writedowns on its options over VW shares. Lower Saxony, which owns 20 percent of VW, will keep its rights to block significant decisions and name two supervisory board members at the carmaker.